Obamacare adds to hospital uncertainty

Medicaid expansion failure to cost Ohio hospitals revenue

Oct. 5, 2013

Written by

Russ Zimmer

CentralOhio.com

Federal healthcare reform is forcing hospitals to make fundamental changes to their business model and prompting small operators to seek the safety of financially stronger hospital networks.

“Obamacare” reinforces a shift away from paying for all services rendered, whether or not they were effective, and toward a model that bundles payments and rewards hospitals for saving payers (public or private insurers) money while also realizing some of the savings themselves. This is done by keeping people healthy, not just treating them when they become sick.

The abandonment of the fee-for-service model is such a foundational shift in how hospitals are paid that it has many wondering if it can work.

“Conceptually, yes,” says Paula Song, an associate professor in Ohio State University’s College of Public Health. “Practically speaking, there are a lot of challenges.”

The carrot for hospitals was supposed to be Medicaid expansion. The idea being that as more uninsured people gained coverage, hospitals would get some money — Medicaid doesn’t reimburse at the level of private insurance plans — for services that would have previously been marked down as bad debt.

Medicaid expansion, for the moment at least, has not been able to advance in the Ohio Legislature.

The federal government, however, will begin next year to phase out payments that helped hospitals defray the cost of charity care — free or reduced-price services based on income qualifications — to pay for the Affordable Care Act.

Adena Health System, based in Chillicothe, provided about $23.8 million in charity care in 2012. They got back about $6 million from the Ohio Medicaid Hospital Care Assurance Program.

“It’s going to be difficult for us to maintain the financial level we are at now” without adjusting services, said Kevin Murphy, chief financial officer for Adena.

Less money being spent means hospitals have to find efficiencies. For some community hospitals there’s nowhere else to reasonably trim without impacting quality so they choose to join a larger system, according to Amy Rohling McGee, president of the Health Policy Institute of Ohio.

Hospital executives seem to be genuinely excited about the payment reform. — even if it creates some short-term uncertainty. Several acknowledged that the way Americans pay for healthcare was in need of repair.

The Altarum Institute, a healthcare consultancy, estimates that 17.5 cents out of every dollar of wealth created in the U.S. goes to healthcare spending.

“Employers are going to demand it, the government expects it and it’s the right thing to do,” said Licking Memorial Health CEO Rob Montagnese. “I think that any hospital and health system or physician that can’t get out of the old paradigm of taking care of sick people and get into a new paradigm of keeping them well and keeping them healthy is going to get left behind.”